The tech industry crisis triggers a commercial real estate crisis

Currently, many tech companies are experiencing a crisis that is substantially affecting the commercial real estate market. Under these conditions, monitoring corporate property data using professional space management tools is particularly important for careful decision-making.

Interconnected markets

The success of the commercial real estate (CRE) industry depends on the success of various industry sectors. Thus, a variety of events can affect it. At the height of the COVID-19 pandemic, the commercial real estate market has suffered a severe shock. For instance, the income from renting commercial properties in New York City and State dropped so sharply in the spring of 2020, that at one point there was concern that tax revenue could decline, harming municipal services.

The decline of the pandemic gave hope to the commercial real estate market, but currently, new difficulties are emerging. The technology industry is experiencing a crisis that is adversely affecting the commercial real estate market. The unstable economic conditions force companies to be more cautious.

The tech giants are getting ready for turbulent waters

Technology giants such as Amazon, Netflix, and Zoom have suffered significant losses this year. Many companies are recruiting fewer new employees, and layoffs of thousands of employees have been announced recently at notable companies including Meta, Twitter, Amazon, Microsoft, and Stripe.

In Israel, a prominent hub of the high-tech industry, the economic conditions for technology companies were favorable in 2021, but experts warn that a consumer recession until at least mid-2023 is probable. 

Similar to the downsizing of the international tech companies, in 2022 a wave of layoffs rolled through prominent Israeli tech companies, such as Wix, Elementor, Cybereason, Trax, Lightricks, Playtika, and Otonomo. As a result, the Israeli commercial real estate market is facing an imminent crisis. 

The situation is still developing, but the demand for offices has already dropped significantly compared to last year, and prices are expected to drop. There is a risk that the tech industry crisis will not end soon, and this in turn may exacerbate the difficulties of the Israeli CRE market.

The technology sector impacts commercial real estate considerably. Therefore, instability in the tech industry threatens the commercial real estate market. Accordingly, in September 2022 the International Monetary Fund expressed concern that worsening economic conditions could harm the CRE market. 

To deal with the crisis, tech companies are seeking to cut real estate expenses: according to a survey conducted by the Gartner Institute among CFOs, 72% of the respondents are interested in reducing real estate expenses next year. Many companies halt office expansion plans and reduce their existing real estate. Some of them, such as Meta, are willing to spend billions of dollars to achieve these goals. 

Some of the notable companies that have made such moves are:

• UBS: The bank has subleased two of its office floors in London since they were no longer needed after the adoption of a hybrid work model.

• Yelp: In preparation for a possible recession, the advertising company has decided to reduce its office space in major American cities. The company will give up an area of over 400,000 square feet. Yelp plans to sublease the vacated spaces to save resources and finance employee assistance.

• JP Morgan Chase: The banking giant has decided to downsize its offices in New York City, sublease some of its remaining properties, and adopt a hybrid work model.

Careful management of corporate properties in unexpected conditions

Any action related to corporate real estate requires care and consideration. After all, the offices and physical premises remain the heart of the company’s activity.

Subleasing underused property is a means of reducing real estate expenses, especially in the case of properties that are rented long-term. This way companies can avoid paying early termination fees and recover some of the expenses. Another course of action is to analyze property utilization patterns to identify and optimize underutilized areas, redesigning or repurposing them.

In any case, dealing with real estate challenges necessitates careful data monitoring. For each space unit, it is important to know its designation, size, rent, occupancy statistics, current rental status, the expiration date of the current lease, etc. 

Tracking this information requires organizing and processing large volumes of data – a task that is difficult to perform manually. Moreover, a powerful data analysis capability is essential to gain in-depth insights into existing conditions. The use of floor plan management software substantially facilitates the control of the company’s assets. 

Also known as “space management software”, it is specifically designed for advanced asset monitoring and effective control. Built-in tools such as live floor plans and a searchable documentation archive make it easy to analyze the performance of individual spaces and keep the information up-to-date and accessible. 

Eventually, the crisis will pass, and the real estate market will recover, but it will always be important to monitor the changing situation and adhere to comprehensive and data-based planning. Thus, facility space management software will remain one of the essential tools for this task.